Personal Finance Terms Glossary: Personal Finance Terms in 2024
4
401(K)
A 401(k) is a retirement savings plan sponsored by an employer that allows employees to contribute a portion of their salary to the plan.
401(K) Loan
A 401(k) loan is a loan taken from a 401(k) retirement account, with the account balance serving as collateral.
401(K) Match
A 401(k) match is a contribution made by an employer to an employee's retirement account that matches a certain percentage of the employee's contribution.
A
Active Income
Active income is income derived from active participation in a trade or business, such as wages, salaries, or self-employment income.
Adjusted Gross Income
Adjusted Gross Income (AGI) is an individual's total income minus specific deductions, used to determine taxable income.
Annuity
An annuity is an insurance product that pays out income over a specified period or for the lifetime of the annuitant.
Appreciation
Appreciation is the increase in the value of an asset over time.
Apr
APR stands for Annual Percentage Rate, which represents the annualized interest rate on a loan or credit card.
Asset
An asset is any resource with economic value that an individual, corporation, or country owns or controls.
Asset Allocation
Asset allocation refers to the process of dividing investments across different asset classes, such as stocks, bonds, and cash, to achieve a desired risk and return profile.
B
Bear Market
A bear market refers to a prolonged period of declining stock prices, typically characterized by a 20% or more drop from recent highs.
Bond
A bond is a debt investment in which an investor loans money to an entity, typically a corporation or government, that borrows the funds for a defined period at a fixed interest rate.
Budget
A budget is a financial plan that outlines your income and expenses over a specific period.
Budgeting
Budgeting is the process of creating a plan for how to spend and manage money, taking into account income, expenses, and financial goals.
C
Capital Gain
A capital gain is the profit realized from selling a capital asset, such as stocks, bonds, or real estate, at a higher price than its original purchase price.
Capital Gains
Capital gains are the profits realized from the sale of a capital asset, such as stocks, bonds, real estate, or businesses, resulting in a higher value than the original purchase price.
Capital Gains Tax
Capital gains tax is a tax imposed on the profits realized from the sale of a capital asset, such as stocks, bonds, or real estate.
Capital Loss
A capital loss occurs when the sale price of a capital asset is lower than its original purchase price, resulting in a financial loss.
Capitalization Rate
Capitalization rate, or cap rate, is the rate of return on a real estate investment property based on the expected rental income relative to its purchase price.
Cash Flow
Cash flow refers to the movement of money in and out of a business or individual's account, tracking the income and expenses over a specified period.
Cash Reserve
A cash reserve is a readily accessible pool of funds set aside for emergencies or unexpected expenses.
Collateral
Collateral is an asset pledged by a borrower to secure a loan or credit, which can be seized by the lender if the borrower fails to repay the debt.
Compound Interest
Compound interest is interest that is calculated on both the initial principal and the accumulated interest from previous periods.
Credit
Credit is the ability to borrow money or access goods and services with the agreement to pay for them in the future.
Credit Report
A credit report is a detailed record of an individual's credit history, including information on credit accounts, payment history, and public records.
Credit Score
A credit score is a numerical representation of an individual's creditworthiness, based on their credit history and financial behavior.
Cryptocurrency
Cryptocurrency is a digital or virtual form of currency that uses cryptography for secure financial transactions, control the creation of new units, and verify the transfer of assets.
D
Debt
Debt is an amount of money borrowed by one party from another, often with the promise of repayment with interest.
Debt-To-Income Ratio
The debt-to-income ratio is a financial metric that compares a person's monthly debt payments to their monthly gross income.
Depreciation
Depreciation is the decrease in the value of an asset over time.
Diversification
Diversification is the strategy of spreading investments across different assets or asset classes to reduce risk.
Dividend
A dividend is a payment made by a corporation to its shareholders, usually in the form of cash or additional shares of stock, representing a portion of the company's profits.
E
Emergency Fund
An emergency fund is a reserve of money set aside to cover unexpected expenses or financial emergencies.
Equity
Equity refers to ownership in an asset or company.
Estate Planning
Estate planning is the process of arranging for the transfer of one's wealth and assets to beneficiaries after death, while minimizing taxes and ensuring the wishes of the deceased are carried out.
Expense
An expense is a cost incurred in the ordinary course of business or personal life.
Expense Ratio
The expense ratio is a measure of the fees charged by a mutual fund or exchange-traded fund (ETF), expressed as a percentage of the fund's average net assets.
Expense Tracking
Expense tracking is the process of monitoring and recording expenses to gain insights into spending habits and control expenditures.
F
Fico Score
A FICO score is a credit score developed by the Fair Isaac Corporation and is widely used by lenders to assess creditworthiness.
Financial Advisor
A financial advisor is a professional who provides financial planning, investment management, and other financial advice to individuals and businesses.
Financial Independence
Financial independence refers to the ability to achieve personal financial goals and live comfortably without the need to work for income.
Fixed Expenses
Fixed expenses are recurring costs that remain relatively stable from period to period, such as rent, mortgage payments, or insurance premiums.
Fixed Income
Fixed income refers to investments that provide a steady and predictable income stream, such as bonds and certificates of deposit (CDs).
Foreign Exchange
Foreign exchange, often abbreviated as Forex or FX, refers to the global marketplace for buying and selling different currencies.
H
Health Savings Account (Hsa)
A health savings account (HSA) is a tax-advantaged savings account that allows individuals to save for qualified medical expenses.
Hedge Fund
A hedge fund is an investment vehicle that pools funds from accredited investors and uses various strategies to generate high returns.
Hsa
A Health Savings Account (HSA) is a tax-advantaged medical savings account available to individuals enrolled in a high-deductible health plan.
I
Identity Theft
Identity theft is a crime in which someone wrongfully obtains another person's personal information, typically for financial gain or fraudulent activities.
Index Fund
An index fund is a type of mutual fund or exchange-traded fund (ETF) that tracks a specific index, such as the S&P 500, and aims to replicate its performance.
Inflation
Inflation is the rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of currency is falling.
Insurance
Insurance is a contract between an individual (the policyholder) and an insurance company to protect against specified risks in exchange for premiums.
Interest
Interest is the cost of borrowing money, usually expressed as a percentage of the loan or investment.
Interest Rate
An interest rate is the amount charged or paid for the use of money, typically expressed as a percentage per period.
Investment
Investment refers to the allocation of money or resources with the expectation of generating income or profit.
Investment Portfolio
An investment portfolio is a collection of investments, such as stocks, bonds, and mutual funds, held by an individual or organization.
Ira
An Individual Retirement Account (IRA) is a tax-advantaged investment account designed to help individuals save for retirement.
J
Joint Account
A joint account is a bank or investment account shared by two or more individuals, who have equal access to and responsibility for the account.
K
Keogh Plan
A Keogh plan is a tax-deferred retirement savings plan for self-employed individuals and small business owners.
L
Liabilities
Liabilities are the financial obligations or debts of an individual or organization, including loans, credit card balances, and mortgages.
Liability
A liability is a financial obligation or debt that an individual, corporation, or country owes to someone else.
Lien
A lien is a legal claim or right on a property, typically used as collateral for a loan or to satisfy a debt.
Liquidity
Liquidity refers to the ease with which an asset can be bought or sold without causing a significant change in its price.
M
Market Capitalization
Market capitalization, often referred to as market cap, is the total market value of a publicly traded company's outstanding shares.
Minimum Payment
The minimum payment is the smallest amount of money that a borrower must pay towards a debt each month to avoid default, typically calculated as a percentage of the total balance.
Mortgage
A mortgage is a loan used to purchase real estate, with the property serving as collateral for the loan.
Mutual Fund
A mutual fund is an investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities.
N
Net Asset Value
Net asset value (NAV) is the per-share value of a mutual fund or ETF, calculated by dividing the total value of assets minus liabilities by the number of shares outstanding.
Net Income
Net income is a company's total revenue minus all expenses, taxes, and other deductions.
Net Profit Margin
Net profit margin is the percentage of revenue remaining after all expenses, including taxes and interest, have been deducted.
Net Rental Income
Net rental income is the total income generated from rental properties minus any expenses, such as maintenance, repairs, and property taxes.
Net Worth
Net worth is the difference between a person's assets and their liabilities, representing their overall financial value.
Netting
Netting is the process of offsetting gains and losses to determine a net amount.
P
Passive Income
Passive income is income that is earned with little to no effort on the part of the recipient, such as rental income or dividends.
Pension
A pension is a retirement plan that provides a regular income to individuals who have worked and contributed to the plan throughout their career.
Portfolio
A portfolio is a collection of investments, such as stocks, bonds, and cash, held by an individual or entity.
Prepayment Penalty
A prepayment penalty is a fee charged to a borrower who pays off a loan or mortgage before the designated term.
Principal
Principal refers to the original amount of money invested or loaned, excluding any interest or investment gains.
R
Real Estate
Real estate refers to land, buildings, and any structures or improvements attached to the land.
Real Estate Investment Trust (Reit)
A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate.
Retirement
Retirement refers to the period in a person's life when they stop working and rely on their accumulated assets and savings.
Risk Tolerance
Risk tolerance refers to an individual's ability and willingness to take on financial risk in pursuit of potential investment returns.
Robo-Advisor
A robo-advisor is an online platform that uses algorithms and automated processes to provide investment advice and portfolio management.
Roth Ira
A Roth IRA is a retirement savings account that allows individuals to contribute after-tax income and potentially withdraw funds tax-free in retirement.
Rule Of 72
The rule of 72 is a quick way to estimate how long it will take to double an investment, given a fixed annual rate of return.
S
Savings Account
A savings account is a bank account that allows individuals to deposit money and earn interest on their savings.
Social Security
Social Security is a government program that provides financial support to eligible individuals in retirement, disability, or after the death of a spouse.
Stock
A stock, also known as a share or equity, represents ownership in a company and represents a claim on part of the company's assets and earnings.
Stock Market
The stock market is a marketplace where buyers and sellers trade shares of public companies, representing ownership in those companies.
Stock Option
A stock option is a contract that gives an individual the right to buy or sell shares of a stock at a specified price within a specific time period.
T
Tax
Tax is a mandatory financial charge levied by the government on individuals and businesses to fund public expenditures.
Tax Deduction
A tax deduction is an expense or reduction to taxable income that lowers the amount of income tax owed.
Taxable Income
Taxable income is an individual's total gross income, minus any deductions or exemptions, used to calculate the amount of income tax owed.
Term Life Insurance
Term life insurance is a type of life insurance that provides coverage for a specific term or period, typically at a lower premium compared to permanent life insurance.
Time Value Of Money
The time value of money is the concept that money available today is worth more than the same amount of money in the future, due to its potential earning capacity.
Traditional Ira
A traditional IRA is an individual retirement account where contributions are typically tax-deductible, but withdrawals in retirement are subject to income tax.
Trust Fund
A trust fund is a legal entity that holds and manages assets on behalf of a beneficiary or beneficiaries.
Tuition Reimbursement
Tuition reimbursement is a benefit offered by employers to help employees pay for education expenses, typically related to job-related courses or degree programs.
U
Umbrella Insurance
Umbrella insurance is liability insurance that provides additional coverage beyond the limits of other policies, such as homeowners or auto insurance.
Underwriter
An underwriter is a financial institution or individual that assesses and assumes the risk of another party for a fee, often in the context of insurance or securities offerings.
Utility Expense
Utility expenses are the costs associated with basic services such as electricity, gas, water, and telecommunications.
V
Value Investing
Value investing is an investment strategy that involves selecting stocks believed to be undervalued by the market, based on fundamental analysis.
Variable Expenses
Variable expenses are costs that fluctuate from period to period, such as groceries, dining out, or entertainment.
Vesting
Vesting is the process by which an employee earns the right to receive employer-provided benefits, such as company stock or retirement contributions.
W
W-2
A W-2 is a form issued by employers to employees, reporting their annual wages, taxes withheld, and other employment-related information.
Wealth Management
Wealth management is a comprehensive approach to financial planning, investment management, and other advisory services, typically for high-net-worth individuals.
Will
A will is a legal document that outlines an individual's wishes regarding the distribution of their assets and the care of their minor children after their death.
Y
Yield
Yield is the income generated by an investment, typically expressed as a percentage of the investment's cost or current value.
Z
Zero-Based Budgeting
Zero-based budgeting is a method of budgeting where all expenses must be justified for each new period, starting from zero, regardless of previous budgets.
Zero-Coupon Bond
A zero-coupon bond is a bond that is sold at a discount from face value and does not pay periodic interest payments, but instead pays a lump sum at maturity.